When the appraisal is “low”...

Question

I’m a seller looking to test the waters and list at a higher price for my area, because most houses have gone so quickly that no clear “top” has been established.

I’m wondering if lenders will usually grant loans when their appraisal is considerably less than the buyer’s offer IF the buyer is willing to cover the amount above the bank’s appraisal?

Is there a general rule-of-thumb percentage above which banks won’t loan?

Charlie MacPherson · Answer

@Blake Varner No offense intended (and I really mean that), but you have a massively under-informed view of what a good agent does.  I know it looks like Realtors just open doors and cash checks, but there is a LOT more to selling a house than the "lawn sign, MLS and prayer" approach.

Can you FSBO?  Sure.  People do it every day.

Are you going to leave money on the table?  Get steamrolled by a strong buyer's agent?  Very likely.

There are so many nuances to the profession that I'd have to write a book to describe them.  Pricing, marketing, screening buyers, screening lenders, terms and conditions, disclosures - especially what has to be disclosed and what doesn't, inspections, post-inspection negotiations - what you must repair and what you can refuse, maximizing multiple offers, riding herd on the lenders, etc.

From my experience as a former Realtor, I can tell you that there is an optimum day to list on MLS.  There is an optimum time and day to schedule your open house.  There is an optimum way to handle showing requests, especially before the open house.  There is an optimum way to solicit offers and an optimum way to handle multiple offers.  There are specific questions you need to ask lenders before accepting an offer.

There have been studies done - admittedly, all I've seen are done by NAR - that shows homes listed by an agent sell anywhere from 9% to 16% higher than FSBOs.  I suspect that is due to better marketing, pricing and negotiating skills.

The internet has streamlined the process of finding the properties that are on the market.  Nothing more - and that's maybe 5% of the process.

BTW - seller's agents don't attend showings for a reason.  They want the buyer and the buyers agent to be able to freely walk around the house and discuss features and flaws.  Having a seller's agent hovering over them hurts the selling process, just like having a car salesman who won't leave you alone to look at cars on the lot.

As you have probably guessed, my advice is the get a good seller's agent on your side.  You'll probably net more money and you won't have to guess your way through the process.

Blake Varner · Answer

Charlie, you may be right. I may be crazy. I have no problem paying an agent an amount proportionate with their contribution to the process, but the reality is that the Internet has completely streamlined the selling process in a way that the old commission model is just no longer justified. Most sellers don’t even realize that the selling agent almost never goes to a showing. They just pop on a lockbox, and the buyers agent does the work.

I’ve sold by owner successfully over a decade ago, but I’ve forgotten a lot of the little things. I’d concede that experience certainly is helpful, especially in more exceptional situations like having multiple offers, and the stigma factor is definitely something to be mindful of.

If there are more tricks to prescreen a prospect in addition to a preapproval letter, drivers license, getting their timeline, giving preference for a conventional loan, this forum seems to be a fine place to ask what those tricks might be.

Charlie MacPherson · Answer

@Blake Varner  You asked in a separate post for an "idiot's guide to FSBO" and I can see why.

Managing offers in a situation like this is one of the many things a good seller's agent will do for you.  If you don't know how to vet both buyers and their lending, chances are good that you'll accept an offer that won't succeed.  Then you have to go back on the market where anybody who saw it go under contract will think that there's something wrong with the property.  It's stigmatized.

The other thing an experienced agent will tell you is that over pricing a property will cause it to sit on the market too long.  You'll have to cut the price, sometimes more than once.  The end result is you'll eventually sell at a lower price than if you had priced it correctly in the first place.

Selling real estate is like a chip shot.  It looks easy from a distance, but when you get up close, it's a lot more complicated than you might think.

Blake Varner · Answer

Thanks for all the responses! When pricing higher like I am, I’m concerned I’ll accept an offer from someone who won’t be able to cover the difference from a low appraisal and the deal will fall through.

Is there any way to minimize the chances of that happening, especially when I can’t be certain what their lender will appraise it at? When looking at offers, I’m going to require a preapproval letter. Can anything be required beyond that?

Karl B. · Answer

When I sold my house in Los Angeles in September the appraisal was a total joke. Luckily, the buyers had a large sum of cash to put down alongside the appraised amount as the appraisal was much lower than the agreed sales price.

In a hot market a buyer is much more likely to do this though they did attempt to get a 15K reduction to which I told my agent to go with the backup offer (and when my agent told the selling agent this the buyers quickly changed their tune and agreed to buy my house at the agreed on price).

Elise Marquette · Answer

The rule is the lender will lend based on the lower of the appraised value or purchase price. There's no limit as to what buyer can pay over the appraised value. This has happened a few times to me recently and buyers have been able to bring the extra cash to closing.

Cody Neumann · Answer

@Blake Varner

The buyer can cover as much as they are willing above appraised value if they have the cash. I would make sure that you have it in the contract from the buyer that they are willing/able to pay $xxx over asking.